When they push mortgage loans, commercial banks and thrifts put themselves on the line to a greater extent than government-sponsored enterprises such as Fannie Mae and Freddie Mac.

Depository institutions bear the credit risk on 28% of the mortgage volume they originated in 1994, compared with the 17% of risk for Fannie Mae and Freddie Mac, a Federal Reserve Board study says.

Private insurance companies also carry roughly 17% of the risk for loans that carry their endorsement, the study indicates.

Mortgage banks, including those owned by commercial banks, typically pass almost all of their risk to Freddie or Fannie by selling the loans for securitization. Commercial banks directly use Fannie and Freddie less frequently but, like other lenders, often partially reduce their risk by requiring that borrowers obtain private insurance.

The study, released in the Fed's November bulletin to banks, also looked at how banks and agencies are meeting the needs of minority neighborhoods. The report said that Fannie and Freddie, formally the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., did not meet the Fed's "expectations."

The Fed expected the agencies would promote homeownership among lower- income people to a greater extent than other, purely private, enterprises.

Fannie and Freddie "did not outperform private sector entities such as depositories," the Fed study said.

The reason: "Fannie and Freddie generally have no interactions with borrowers and are not located in the neighborhoods where the mortgages are originated; thus they lack the opportunity to look beyond traditional measures of risk," the study said.

The findings notwithstanding, Fannie and Freddie have crafted ambitious campaigns whose goal is to raise mortgage use by lower-income borrowers. Those programs continue in urban areas.

The study did live up to other expectations the Fed had. For instance, the report showed that the Federal Housing Administration program is doing more than other programs for lower-income, black, and Hispanic borrowers.

The result "was to be expected," said the Fed, because the FHA generally insures the mortgages of borrowers who have very few assets available for down payments and closing costs.

The Department of Housing and Urban Development's FHA program can reach many minority borrowers because it benefits from a government subsidy and does not have to produce a competitive return on equity and performance targets of privately owned institutions.

More loans in black and Hispanic neighborhoods were made through the FHA program than by banks and thrifts.

The Fed attributes the performance to a lack of flexibility. Depository institutions, the Fed said, "have had less success developing mortgages that incorporate more flexible standards for a wider range of underwriting criteria."

But banks and thrifts are not without accomplishment as minority lenders, the Fed study said. "Depository institutions have had substantial success creating mortgage products for lower-income borrowers with few assets" but still meet underwriting criteria.

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